Flipkart Gets Clean Slip from Enforcement Directorate; Declared Not Guilty over FDI Violation for Now

Flipkart has been on fire in the media lately, over a lot of issues – heavy discounts, site crashes, unauthorised sellers, Big Billion Day sale issues and most of all over FDI violation. Enforcement Directorate which had earlier announced the e-commerce player to be guilty has declared another verdict now.

According to the latest release by Financial Express, ED’s investigation into Flipkart has so far not found the online merchant guilty of violation of FDI rules and any immediate show cause notice to the company was unlikely and that the firm’s business structuring fell in a grey area of law.

This means its a good sign for Flipkart, which has held its silence on the matter up till now. Most of the involved agencies – FIPB, RBI and Finance Ministry, do not have a substantial evidence for slapping a case against the company.

Recently a source from Enforcement Directorate told Economic Times that it found Flipkart guilty of FEMA violations and will be coming after it with a heavy fine. In order to skirt around the issue of violating FDI norms in multi-brand retail, players like Flipkart changed their B2C strategy and started operating like a marketplace, with different sellers fulfilling customer orders. However now the tables have turned.

As per the FE report, “Foreign Exchange Management Act only deals with compliance in receiving foreign investment by entities in specified sectors. Investigating what the company does with such funds is not within the scope of this law,” said a source.

In layman terms, ED is not responsible for looking into what happens with the investment a company is getting, however if the company is having an association with an online B2C retailer, that would make an FDI-funded online wholesale trader guilty of FDI violation. With that said, it is important to question Flipkart’s association with WS Retail here. Could this be the case of selling under a cover identity to skirt the laws?